The Outlook for Cuba’s Cruise Industry in 2017

Within weeks of Fidel Castro’s death, brother Raul opened the gates for a wave of thousands more Americans to visit Cuba via cruise ship.

Three cruise companies — Pearl, Norwegian and Royal Caribbean — are among several that were rushing to conclude deals with Cuba before the start of President-elect Donald Trump’s administration. On the U.S. side, the biggest unknown revolves around President-elect Trump’s tweets about his Cuba policy, culminating in a threat to, “terminate the deal,” should unspecified conditions fail to materialize.

The only cruise vessel now sailing from the U.S. to Cuba is the 704-passenger Adonia, which flies the flag of Fathom, one-ship brand launched earlier this year by Carnival Corp. Carnival is awaiting permission to send ships from its other brands after Fathom stops operating as a cruise line in May 2017.

The recent approvals appear to have been made on a temporary basis. Norwegian said its permission extends through May, which corresponds with the expiration Adonia’s one-year permission to sail to Cuba. Other lines didn’t address how long they can sail to Cuba or said they did not know if there was any time limit.

The Cuban transport ministry confirmed earlier this year that the number of cruise ship visits rose from 24 in 2012 to 139 in 2015. Cruise passengers jumped from 6,770 to 37,519 over the same period. Up to May of 2016, there were 174 port calls and 62,183 passenger visits, according to the ministry. For at least the first six months of 2017, Cuba’s exponential growth is likely to continue.

Cuba’s newness to the American market is emerging against the backdrop of an upswing in regional cruise demand, at least in terms of top line passenger numbers. The Caribbean in particular headlines the cruise industry’s global success. In 2015, it ranked as the dominant cruise destination, accounting for more than 35.5% of the global deployment capacity market share, according to the Florida-Caribbean Cruise Association.

During Carnival’s earnings call for the 2016 fourth fiscal quarter, CEO Arnold Donald told analysts, “The most important thing is positioning for the longer haul and positioning to lift overall demand and interest in the Caribbean — and ultimately because of that, create additional opportunity for capturing more of the value through increased yields,” he said. “And so Cuba is a longer term play, but you have to build it today and that’s what we’re doing. But in terms of the financial impact on the corporation, you couldn’t find it probably.”

The bigger issue, assuming the trend continues, is how market prices for Cuba itineraries will hold up where economies of scale, a vital aspect of the modern cruise industry, are limited by Cuba’s lack of infrastructure. Ever larger ships spread costs over an astounding 6,000+ passengers. This size ship is far out of reach for existing Cuban ports and its absence is a potential threat to the current growth trend.

On the Cuban side, dramatically increasing passenger landings may not deliver the expected payday for Cuba’s revenue expectations and could spoil the very unspoiltness that travelers expect from Cuba. In fact, over the past decade or so, cruise tourists have made up about 40% of all tourists in the Caribbean, yet they have accounted for less than 10% of overall tourist expenditures.

In 2015, Havana along hosted 1.7 million visitors, and the Ministry of Tourism (MINTUR) projects a 37% jump in 2016.

Yet Cuba as a whole runs little risk of becoming overrun by foreigners. There is plenty of scope for the expansion of tourism. One common indicator of a nation’s tourism potential is the ratio of international tourist arrivals relative to its population. By way of comparison, this ratio in the Dominican Republic is 0.49, in Costa Rica 0.53, and in Jamaica 0.76, whereas in Cuba the ratio of tourists to the population had only reached 0.26 in 2014.

Unlike the Adonia’s week-long circumnavigation of Cuba, most of the newest approvals have limited Cuban port calls. For example, cruises aboard Norwegian Sky will overnight in Havana and include a stop at Norwegian’s private island in the Bahamas, Great Stirrup Cay. Norwegian Sky, the largest ship to sail from the U.S, also has the current lowest advertised price at $699 per person.

Royal Caribbean is offering four five- and seven-night cruises that includes a stop at Havana (all between April 19 and May 29 on Empress of the Seas).

Norwegian Cruise Line Holdings president and CEO Frank Del Rio said he expected to see “a ship in Havana every day of the week.”

RSSC’s seven-night Caribbean cruises aboard Seven Seas Mariner (the first all-suite, all-balcony ship) features an overnight in Havana and starts at $2,999 per person including airfare, unlimited shore excursions, Wi-Fi, fine wine and spirits, along with other amenities. Other port calls include Belize and Mexico.

In most cases, cruise passengers will have a selection of shore excursions that are in compliant with U.S. OFAC regulations (travel restrictions only for U.S. persons).

Finally, while not part of the newest additions to Cuba’s cruise authorizations, Celestyal Cruises announced its fourth year of cruise operations in Cuba. This season the line will sail year-round to the country, offering a people-to-people itinerary for U.S. passengers for the first time. The cruises include two days in Havana, with additional calls at Cienfuegos and Santiago de Cuba. Cruises depart from and return to Jamaica.

Long term plans, such the one mentioned by Carnival CEO, Arnold Donald, often find a watery grave after colliding with short financial reality – at night in a fog in the open water. Putting politics aside, the convergence of the twain will be avoided and the market will find a balance that works for Cuba and the cruise industry.

The Outlook for Cuba’s Cruise Industry in 2017 was last modified: December 24th, 2016 by Simons Chase